UPDATE 1-Telefonica says no talks with KPN on German networks

Tue Apr 23, 2013 12:19pm EDT

* Head of strategy says Telefonica to protect 4G advantage

* KPN hurt by stiff German competition, network concerns

SAO PAULO, April 23 (Reuters) - Spain's Telefonica SA is not currently in talks with Dutch telecom group KPN over sharing their mobile networks in Germany, a senior Telefonica executive said on Tuesday.

"There are no active discussions with KPN on that subject right now," Eduardo Navarro, Telefonica's director of strategy and alliances, told reporters in Sao Paulo. "In Germany we have a competitive advantage over KPN, which is our 4G network. So any arrangement would have to preserve that advantage."

His comments tamped down expectations of a network-sharing deal for Telefonica subsidiary O2 Germany and KPN's E-Plus, which would help cut capital expenditures for the two highly indebted groups.

The Financial Times reported earlier this month that discussions on such a deal were set to reopen.

Still, Navarro, one of a handful of executives who reports directly to Telefonica Chief Executive Cesar Alierta, said market pressures are steering European phone companies toward more agreements of that kind.

"There's not enough space in Europe for all the networks out there today. So there's a natural movement toward consolidation, whether through sharing networks or through mergers," he said.

KPN canceled its dividend for this year and next on Tuesday after stiff competition in Germany contributed to falling core profits, highlighting challenges for the company. Mexican billionaire Carlos Slim's America Movil holds near 30 percent of the company.

Espirito Santo Investment Bank wrote in a note to clients that KPN's E-Plus came out badly in a recent German consumer survey with very poor perceptions of network quality.

Navarro confirmed that an upcoming auction of broadcast spectrum in Germany is one example of an event that could trigger further consolidation in the market, adding that Telefonica itself felt no urgency.

"We're happy with what we have in Germany. We don't have needs there," Navarro said. "We can keep growing with what we've got in place. But if opportunities arise, we will certainly evaluate them."

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